[ECON 401] - Final Exam Guide - Ultimate 22 pages long Study Guide!

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1 Dec 2016
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Ceteris paribus, when the price of a product falls, the quantity demanded increases. This price change causes only a movement along the demand curve. Graphical representation and negative slope (figure 3. 1). Two effects at work behind the law of demand: Substitution: the fall in price causes to substitute away from other goods; Income: the fall in price increases the consumer"s purchasing power. Warning: a movement along the demand (price) vs. a shift in demand (other factors). What shifts the market demand? (table 3. 1) Normal good: a rise in income its demand shifts right; Inferior good: a rise in income its demand shifts left. Price of related goods: (a and b) Substitutes: the price of good b increases the demand of good a increases; Complements: the price of good b increases the demand of good a decreases. If a product becomes more popular its demand shifts right. Expected future prices (the role of expectations)

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